Are Canadian Dividend Paying Stocks Worth the Risk?

Did you know that some of the highest dividend paying stocks available to invest in are actually from Canadian companies? There are plenty of Canadian dividend paying stocks for investors to choose from. Just like their U.S. counterparts, there are both risky and safe Canadian stock investments. The hard part is trying to tell the difference between the good dividend paying stocks and the bad ones.

Here are a few of the associated risks you may come across from investing in Canadian stocks.

3 Risks of Investing in Canadian Dividend Paying Stocks

Here are a few risks that you need to be aware of before making your investment.

• Unknown Market – Unless you have bought and sold Canadian stocks in the past, then you are going into an unknown market with no experience. This may be okay for some savvy investors but should still be considered a risk before making any investment. It is also important to understand any currency differences between your home country and Canada. In some cases, this may be an advantage instead of a risk.
• Light Volume – Many of the highest paying dividend Canadian stocks have low liquidity. This means that the volume of shares traded each day is so small, you may not be able to sell or buy shares at a competitive price. There are plenty of exceptions to this rule, but this is something to keep in mind when searching out Canadian stocks.
• Canadian Royalty Trusts – These types of dividend paying stocks are often referred to as CanRoys. The majority of these securities have been known to have very high dividend yields which can be very misleading to the average investor. Most of these trusts are in the oil and natural gas exploration business and pay out the majority of their earnings in the form of dividends. During peak economic times, this can mean huge dividends but can also mean huge losses in a down economy. In addition, there is a planned 2011 tax status change that will force these trusts to become regular corporations which will limit their ability to payout hefty dividends.

Are There any Advantages?

So now that we have covered some of the risks and disadvantages, is there any reason to still consider investing in Canadian dividend paying stocks? The short answer is – ABSOLUTELY! There are plenty of high quality stocks from Canadian companies, just as there are in the U.S. and other countries around the world.

The next time you think about running a stock search of a security with a high dividend yield, why not consider adding one from Canada? As long as you complete your due diligence and are confident with your analysis, you should have no problem adding Canadian dividend producing stocks to your portfolio!

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